Search for Google IPO Is Over

Investors are feeling lucky going into the Street's hottest IPO in many years.

Setting the stage for the most eagerly awaited initial public offering since the tech bubble burst, the Internet search-engine operator filed IPO documents Thursday at the Securities and Exchange Commission.

Google will seek to raise $2.7 billion in a deal led by Morgan Stanley and Credit Suisse First Boston, according to its form S-1. As had been speculated, Google will take the unusual step of selling all of the shares through an auction-based process, rather than giving underwriters the lead role in deciding how much the company is worth.

"We are working to create a sufficient supply of shares to meet investor demand at IPO time and after," Google said in a prospectus. "Buyers hoping to capture profits shortly after our Class A common stock begins trading may be disappointed."

(To see the text of the company's letter to prospective shareholders, click here .)

The offering itself is still several months off and no decision has been made on whether the shares will be listed on the New York Stock Exchange or Nasdaq Stock Market.

Google also revealed it earned $105.6 million on revenue of $961.8 million in the 2003 fiscal year, up from earnings of $99.7 million on revenue of $347.8 million a year ago. Earnings grew at a much slower pace than revenue because of huge increase in the company's marketing costs and a jump in stock-based compensation to $229.4 million from $21.6 million in 2002.

In the first quarter of 2004, the company earned $63.9 million on revenue of $389.6 million, a fat margin that will command a big premium to earnings when stock is sold publicly. The company had 264.1 million shares outstanding in that period.

The filing gives investors their first look at the finances of one of the most popular sites on the Internet -- a business that has played a major role in changing how people search for information online, and how advertisers vie for people's attention on the Web.

The newly public company will also have a somewhat unconventional ownership structure in which Google will effectively be controlled by its founding shareholders, Larry Page and Sergey Brin, through a special class of voting stock. The company touted the setup as a way of keeping itself independent and focused on long-term goals.

"The main effect of this structure is likely to leave our team, especially Sergey and me, with significant control over the company's decisions and fate, as Google shares change hands," Page said in the prospectus. "New investors will fully share in Google's long term growth but will have less influence over its strategic decisions than they would at most public companies."

Google noted that the dual-class structure has media companies keep shareholders from meddling with internal decisions.

"Media observers frequently point out that dual class ownership has allowed these companies to concentrate on their core, long-term interest in serious news coverage, despite fluctuations in quarterly results."

Still, such share structures have been linked to excesses at companies like Adelphia Communications, where critics say they shielded managers from direct accountability to shareholders. The company also speciously compared its proposed setup to that of Warren Buffett's Berkshire Hathaway, where class B shares were introduced to keep unit trusts from selling the company's super-expensive A shares piecemeal.

Based on TheStreet.com's crunching of the numbers, co-founders Sergey Brin and Larry Page each own about 15% of company stock, venture capital firms Sequoia Capital and Kleiner Perkins each own 9%, and CEO Eric Schmidt holds 5.6%. Brin and Page each own about 38.5 million Class B shares, securities that will have 10 votes to Class A shares' one when the the offering occurs.